How Germany Made the Greek Crisis Worse – Der Spiegel Analysis

The Greeks are mainly responsible for their current predicament.

But the German government has made the country’s situation worse with its lectures and reluctance to provide assistance. 

The Greeks are mainly responsible for their current predicament.

The Greeks are mainly responsible for their current predicament.

But the German government has made the country’s situation worse with its lectures and reluctance to provide assistance. 

The Greeks are mainly responsible for their current predicament.

But the German government has made the country’s situation worse with its lectures and reluctance to provide assistance. 

Chancellor Angela Merkel is mainly to blame for the fact that German taxpayers now have to suffer.

So argues Prof. Dr. Gustav Horn, director of the Macroeconomic Policy Institute (IMK) at Germany’s Hans-Böckler Foundation, a group that is aligned with the country’s trade unions, who teaches at the University of Flensburg. [br]

On the one side there are the Greeks, who clearly still do not have their financial statistics under control and who produce one false report after another about the country’s budget deficit.

On the other side are the Germans, who delight in hindering a rapid and unambiguous European response to the Greek crisis — in the process driving the cost of a solution through the roof.

At the same time, it is striking just how many representatives of the parties in Germany’s coalition government are giving advice to the Greeks, ranging from drastic pay cuts to an immediate declaration of insolvency right up to a swift withdrawal from the euro zone.

These observers base their verbal radicalism on the noble economic argument that Greece needs to be made “fit for the financial markets” once again.

Another argument goes that the vast majority of Germans are unwilling, after years of limiting their own consumption, to make financial sacrifices to help out Greece.

Both Greece’s calculation errors and the diva-like reluctance of the German government to help Athens are nothing more than an invitation to speculators to bet on the demise of the southern European country.

This also explains why risk premiums on Greek government bonds have shot up to previously unimagined heights in recent days, argues Dr Horn in this provocative analysis published in Der Spiegel, one of Germany’s leading media outlets.

The Greek government must now pay such high interest rates to refinance its debts that it can no longer get by without foreign assistance, despite recent tax increases and massive wage cuts.

In the process, and as a result of the active assistance of the German government, what has happened is exactly the thing that was supposed to be avoided, and what could have been avoided — namely that Greece has indeed been forced to ask for financial help from other European countries. [br]

The problem for the German government is that its arguments are not tenable.

That applies first of all to the reference to the financial markets, an argument that is delivered in a tone of utter conviction that the risk premiums seen there accurately represent real risks.

It is remarkable that, after all that has happened in the last couple of years, experienced politicians still assume that financial markets produce rational and reliable information.

It is a fact that speculators have access to no more information about Greece than the economic experts in Europe’s governments.

There are, however, many market players such as hedge funds which derive profits from uncertain events.

The more chaotic things are, the more they like it.

Their biggest enemy is political clarity, which is why they are delighted when politicians indulge in scaremongering.

In the case of Greece, this scaremongering has succeeded extremely well, as the skyrocketing risk premiums show.

The role of rating agencies can also not be forgotten.

It was their downgrading of Greece’s creditworthiness that triggered waves of speculation.

This is partly because the rating agencies, according to current regulations and despite their total failure during the financial crisis, still have a lot of power over the markets — power that was given to them by politicians.

Every downgrading of Greece’s status forces banks to sell Greek government bonds.

This in turn accelerates the decline in the value of those bonds, leading to even higher interest rates.

The populist argument that the majority of the populace is opposed to financial backing for Greece, is also attributable to the German government —

because Chancellor Angela Merkel, of all people, blocked the only successful path that would have prevented having to pay out billions in aid.

The path would have looked like this: Early on — in other words, weeks ago — the EU should have explained credibly and clearly that it would take a shared common responsibility for an equal member of the common internal market.

That would have included the readiness, under certain conditions and in an emergency, to guarantee payments to Greece.